Chapter 1

The Nature of Strategic Management

Strategic Management:
Concepts & Cases
13th Edition
Fred David

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Strategic Management –Defined

Art & science of formulating,

implementing, and evaluating,
cross-functional decisions that
enable an organization to achieve its
objectives

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Strategic Management

In essence, the strategic plan is a

company’s game plan

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3 Stages of the Strategic
Management Process

 Strategy formulation

 Strategy implementation

 Strategy evaluation

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Strategy Formulation

Vision & Mission

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection

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Strategy Implementation

Annual Objectives

Policies

Employee Motivation

Resource Allocation

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Strategy Evaluation

Internal Review

External Review

Performance Measurement

Corrective Action

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Key Terms in Strategic Management

 Competitive advantage
 Strategists
 Vision and mission statements
 External opportunities and threats
 Internal strengths and weaknesses
 Long-term objectives
 Strategies
 Annual objectives
 Policies
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Strategic Management is
Gaining and Maintaining
Competitive Advantage

Anything that a firm does especially

well compared to rival firms

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Strategists

Gather Information

Analyze Information

Organize Information

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Vision and Mission Statements

Vision Statement –
What do we want to become?

Mission Statement –
What is our business?

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External Opportunities and Threats

Analysis of Trends
 Economic
 Social
 Cultural
 Demographic/Environmental
 Political, Legal, Governmental
 Technological
 Competitors

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External Opportunities and Threats

Basic Tenet of Strategic Management

Take
Takeadvantage
advantageof
of
External
ExternalOpportunities
Opportunities
Strategy Formulation

Avoid/minimize
Avoid/minimizeimpact
impactof
of
External
ExternalThreats
Threats

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Internal Strengths and Weaknesses

 Controllable
activities performed
especially well or poorly

 Determined relative to competitors

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Internal Strengths and Weaknesses
 Typically located in functional areas of the firm

 Management
 Marketing

 Finance/Accounting

 Production/Operations

 Research & Development

 Management Information Systems

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Internal Strengths and Weaknesses

Assessing the Internal Environment

Financial Ratios

Performance Measures
Internal Factors
Industry Averages

Survey Data

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 Cont…
 Financial ratios  are created with the use of
numerical values taken from
financial statements. ... Assets
= Liabilities + Equity, income
statement. The profit or loss is
determined by taking all
revenues and subtracting all
expenses from both operating
and non-operating activities.

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Cont…

 Performance  is the process of

measurement collecting, analyzing
and/or reporting
information
regarding the
performance of an
individual, group,
organization

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Cont…
Industry  Industry averages (of
averages financial ratios) are
generally using as
benchmarks or tools which
helps business to make
comparisons that helps to
determine its position within
the industry and evaluate
financial performance of the
business.
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 Cont…
 is defined as the
 Survey data
resultant data that is
collected from a sample
of respondents that took
a survey. ... There are
many methods used for
survey data collection
and statistical analysis.

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Long-Term Objectives

 Specific results that an organization

seeks to achieve in pursuing its basic
mission

 Long-term means more than one year

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Long-Term Objectives

 Essential for ensuring the firm’s success

 Provide direction

 Aid in evaluation

 Create synergy

 Reveal priorities

 Focus coordination

 Provide basis for planning, organizing,

motivating, and controlling

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Strategies

Means by which long-term objectives

are achieved

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Strategies
 Examples
 Geographic expansion

 Diversification

 Acquisition

 Product development

 Market penetration

 Retrenchment

 Divestiture

 Liquidation

 Joint venture

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Annual Objectives

Short-term milestones that firms must

achieve to reach long-term objectives

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Policies

Means by which annual objectives will

be achieved

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Strategic Management Model

 StrategicManagement Process
 Dynamic & continuous

 More formal in larger

organizations

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Strategic Management

 Communication is a key to
successful strategic management

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Benefits of Strategic Management

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Benefits of Strategic Management

 Nonfinancial Benefits
 Enhanced awareness of threats
 Improved understanding of competitors’ strategies
 Increased employee productivity
 Reduced resistance to change
 Clearer understanding of performance-reward
relationship
 Enhanced problem-prevention capabilities

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Why Some Firms Do No Strategic
Planning
 Lack of knowledge of strategic planning
 Poor reward structures
 Fire fighting
 Waste of time
 Too expensive
 Laziness
 Content with success

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Why Some Firms Do No Strategic
Planning (continued)
 Fear of failure
 Overconfidence
 Prior bad experience
 Self-interest
 Fear of the unknown
 Honest difference of opinion
 Suspicion

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